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BlueScope looking for blue sky

Technical Analysis

LONG-TERM holders of BlueScope Steel have needed its products lining their stomachs to stay with the stock. Spun out of BHP a decade ago, the steel maker and fabricator reached dizzying heights of $51 (adjusted for a recent 1-for-6 consolidation) before collapsing after the GFC.

This week's chart, produced by Gary Burton, a member of the Australian Technical Analysts Association and a senior adviser with Wilson HTM Investment Group, shows BlueScope went into a long descending triangle pattern from late 2008 that saw it fall through a couple of support levels, at $8.95 and $3.23.

In the final down leg the stock fell through a support level at about $2.40, crashing down to $1.46 in July last year. That low point coincided with an underlying loss of $118 million and billion-dollar write-downs.

But what a difference a few months and a change of sentiment can make to the sharemarket. The loss for the December half was a manageable $12 million, a small profit is predicted for the second half and there is some optimism back in the business around the potential of its Asian arrangements with Nippon Steel.

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The company is even looking at a $400 million investment in the US through its US joint venture, North Star Steel.

The recent turnaround, in which the share price has risen almost vertically over the past six months, has firmly put BlueScope into an upwards pattern, Burton says. The recovery has been durable to date, with some important resistance points tested and breached.

The first was the $2.40 level that had acted as a support early last year. In hitting that level in August the stock retreated and retested the $2 level. Importantly, $2 proved a support point and BlueScope went through $2.40 and on to breach $2.63. It also encountered resistance at another old support level of $3.23 in October, then went on to push through it in November.

With the stock moving strongly upwards and even breaking through the old downward trend line set by the GFC at $4.38 in recent times, Burton sees a major uptrend developing. That trend has the potential to push the stock up to a resistance point at $6 and beyond. Another major resistance line would be the old support level of $8.95 if the rise continues.